First of all, lets be very clear: its not exploitation and the revenue streams are not hidden. Network Effect Data (data exhaust, aggregate application data, etc.) is based on the position of the SaaS vendor as a proxy in a multi-tenant environment and the value that is created by the network effect data can be quite significant when leveraged correctly; both for the vendor and the ecosystem.
Regarding Network Effect Data, as a SaaS vendor, you should:
- Make sure your User Agreement is up-to-date and is clear about your intentions (see your legal department)
- Anonymize the data before leveraging it in aggregate
- Leverage the information as soon as it becomes actionable
- Understand that this is part of the trade-off that you get for managing infrastructure and operational burden for the clients
- Add value to the ecosystem when you leverage Network Effect Data
I realize that journalists or analysts that attack SaaS vendors for "exploiting" Network Effect Data get hits when they spread FUD. I do feel that I have to defend the rights of the SaaS vendor from the negative attacks. I also need to remind my clients, readers, and followers that these folks are just spreading FUD and that leveraging, not exploiting, Network Effect Data, is potentially a critical piece of the value derived from being a SaaS vendor. Finally, I need to remind the users of SaaS that a credible, trustworthy vendor will leverage the Network Effect Data in a way that provides value to you in a way you could never have expected from Legacy Software.
The problem with Network Effect Data is that, just like SaaS itself, it is mis-understood. For example, too many SaaS vendors consider the de facto revenue model in SaaS to be monthly subscriptions, which is not only untrue, but limits the potential of the SaaS vendor substantially. In that same vein, most people think of "selling aggregate data" by a SaaS vendor as some sort of nefarious dumping of client-spefiic data to the highest bidder in a back-alley transaction. That is either an antiquated view, one that exemplifies the naivete of the author, or worse...
It is not only common practice, but highly accepted, to leverage Network Effect Data in these functional areas and market verticals:
- Supply Chain Management
- Financial / Banking / Credit Reporting
- Healthcare
- Entertainment (Music, Movies, TV, etc.)
- Retail
Note the inclusion of Healthcare in there; an industry with tight privacy laws (not just industry suggestions, but laws). All of these industries have been trading in data like this for years. The vendor needs to ensure they comply with the proper laws and industry governance and make the right ethical decisions, but anyone who makes a blanket statement that leveraging network effect data by a SaaS vendor is "exploitative" or otherwise inappropriate is simply trying to stir the pot by being "edgy" or is, even worse, incented to spread FUD.
Unfortunately, most SaaS vendors do not consider leveraging Network Effect Data as a viable revenue stream, mostly because they do not understand what they have at their fingertips. This means they often fail to build into their system adequate data capture methods which prevents them from leveraging network effect data in any meaningful way. If they don't capture data in the right way, even if they do realize what they have later, they will have missed out on all of the data up to that point and will have to re-architect the system for improved data capture. These are things that need to be considered during the early phases of product development, even if you won't be able to fully monetize for a long time.
In fact, how long it will take to get to a point where you can derive revenue from Network Effect Data is something that is 100% unique to your business. We leverage our proprietary SaaS Revenue Matrix with our clients to get past the false notion of "critical mass" for Network Effect Data value.
Do you need help "exploiting" your Network Effect Data to drive revenue or want to figure out now when it would make sense to do so? Do you need guidance on how to capture data effectively so you can leverage it in the future? If so, give us a call at (972) 200-9317 or use our contact form.
Author: Lincoln Murphy (You should follow me on Twitter!)